In May 2006, I contributed an article for publication on the newly re-developed British Computer Society ("BCS") website. Briefly, the article related to concerns operating throughout the first-world IT industry relating to increased competition from offshore IT service businesses located in former eastern-bloc countries and other developing nations such as India.

Concluding the article, I wrote

"... while offshoring has had considerable impact on the UK's IT workforce today, and continues to generate considerable anxiety throughout the UK's IT profession, going forward, it is likely that offshore solutions providers will begin to complement rather than compete directly with the UK IT industry, steadying labour costs and encouraging higher skill levels in information technology professionals so reducing the risks associated with small, medium and large-scale software development and systems integration projects.

This, in turn, is likely to lead towards growth of the UK's IT industry as business begins to regard investment in IT projects as having a more predicable outcome than in the past - both in terms of overall project costs, and in successful implementation."

The article, and the conclusion drawn from my analysis suggested that whereas IT oriented businesses would find it more difficult to compete with offshore IT services providers without supplementing skill sets with higher value skills such as business analysis, business process engineering and project management, these higher value skills would help businesses to identify new opportunities such that, where labour cost differentials remained, development work could be outsourced to create larger, more sophisticated software systems leading towards increased efficiency gains, and ultimately business growth.

Fundamentally, against assumptions that offshoring would result in unemployment and economic loss, I argued that growth in offshore IT services business and, hence, the available supply of IT technical services world wide would lead to an overall growth in the number of electronic systems being developed; that demand for IT related services is elastic.

Interestingly, I spoke with a former colleague of mine at Xerox Technical Centre, Welwyn Garden City. Discussing the trends within the xerographic printing industry and following comments to the effect that alot of development work was now being conducted in offshore centres such as India, it was interesting to learn that whereas the printer / photocopier markets had become commoditised, higher volumes of work were being generated through customization programmes: the customer, sometimes seeking many thousands of machines, require specific systems integration / bespoke customization work.

Thus, whereas previously much effort was going into research and development of future products; more effort was now being directed towards engineering and re-engineering existing products to meet the customers' specific requirements.

Here follows the text of a report I put together in mid 2009 in connection with an application to the Economic Development Department of the States of Jersey for the role of "E-Commerce Manager", which was a position intended to lay the foundations for an electronic commerce industry in Jersey, Channel Islands. Notably, the report pre-dates the introduction of the Apple iPad and the mass adoption of 2.5G, 3G and 4G telecommunications technologies, of smart phones and of tablet technologies generally. Easy to use tablet technologies have, in my view, been highly disruptive to the marketplace for ICT; and have lead to significant societal changes since their introduction. On reflection of the comments made herein, it is particularly interesting to note the role of cloud technologies in servicing the marketplace established by the tablet, smart phone and converged entertainment markets.


Information communications technology (ICT) is principally an enabling technology that is typically applied to automate processes that require manual intervention, or are subject to procedural steps.

Electronic commerce is in essence the application of ICT to the processes associated with economic activity: information exchange, contract formation and performance. To apply electronic commerce to economic development in Jersey it is necessary to consider –

  1. the structure of the Island’s economy at present;
  2. how the Island’s economic structure may develop over time; and
  3. likely technological, economic and political developments.

This research note briefly considers these areas and offers a selection of ideas to address the potential needs of Jersey’s economy going forward. This research note is not the product of exhaustive analysis and does not address, in detail, possible electronic commerce development in the finance industry which would require research into the specific nature of financial products and services offered by businesses in Jersey.

Trends in Jersey’s Business and Economy

Economic structure – In 2007, Jersey’s economy was structured as follows, in terms of gross value added (GVA) –

  1. finance: 53%
  2. public administration: 7%
  3. wholesale and retail: 6%
  4. construction: 5%
  5. transport, storage and communications: 4%
  6. hotels, restaurants and bars: 3%
  7. manufacturing: 2%
  8. agriculture: 1%
  9. other business activities, such as architects, cleaning services, advertising: 7%
  10. rental: 11%

Cost base – Jersey’s cost base has been rising at an unprecedented rate since the mid-1990’s, particularly in relation to living essentials: housing, labour and goods. For example, since 2002, the house price index shows increases of approximately 60%; since 2000, average earnings have increased approximately 44%; and since 2000 the retail price index shows increases of approximately 37% (source: States of Jersey Statistics Unit).

Skill base – Jersey’s skill base is structured as follows –

  1. no professional qualifications: 58%;
  2. teaching qualifications: 5%;
  3. medical and health care specialists: 1%;
  4. business, finance or administration professional qualifications: 11%
  5. other professional qualifications: 22%.

Government revenues – With the introduction of the zero-ten tax regime, in 2010 approximately 84% of Jersey’s estimated government revenues of £579 million is expected to be generated through income tax whereas goods and services tax is expected to generate approximately 8%, and impots duty is expected to generate approximately 8.4%.

Jersey’s government is becoming increasingly dependent upon income and expenditure of local people, rather than depending upon the profits of resident and non-resident businesses. There is a generalised trend among non financial businesses towards reduced profits due to competition and, as other jurisdictions begin to compete with Jersey in the financial services sector, it is possible that profits and remuneration in the finance industry will begin to fall as well. Government income is threatened further by changes in the structure of Jersey’s financial and non-financial labour market: people on lower incomes contribute less to tax revenues than those on higher incomes, particularly while the rate of goods and services tax remains low. Reduced demand for finance industry labour coupled with increased redundancies could lead to a generalised trend towards lower paying jobs and unemployment.

Economy – The local economy is critically dependent upon income generated through the export of products and services including financial services, electronic commerce, tourism and agriculture.

The financial services industry is threatened, generally, by competition between jurisdictions: as an industry increasingly based around tax neutral legal structures, and administration of those structures rather than necessarily being based on tax avoidance, or the exploitation of double taxation relief it is vulnerable to competition from similar, self governing offshore jurisdictions operating with lower cost bases.

The strength in the Island’s finance industry lies partially in branding, in experience, in the availability of suitably trained and experienced workers and, interestingly, in the existence of what might be termed a “bit slice” industry: an industry typified by numerous smaller entities that specialise in focused technical areas that together form compound services.

The electronic commerce industry is threatened, generally, by increasing cost bases and import controls by countries receiving goods from Jersey: for example, the European Union’s de minimus VAT exemption threshold could be withdrawn or its benefits eroded over time through inflation.

The tourism industry has been in decline for many years flowing from the high cost of reaching the Island, and the Island’s generally high cost base.

The agriculture industry has also suffered due to the high cost of Jersey produce, and increased competition from producers of similar products using highly automated and controlled production environments.

Trends in computing

There a number of identifiable trends in the computer industry –

  1. increased thread processing capability of computer processors where most advances in computing performance are based on increases in the number of separate tasks that may be executed at a given time rather than acceleration of any particular task;
  2. establishment of huge data centres for running client applications on a scaleable basis (Google App Engine, Amazon EC2, IBM Cloud);
  3. computing models based on virtual machines and virtualization which enables applications to execute independently of a particular hardware / software environment to facilitate cloud computing.

Solutions

There is a general trend, throughout the developed world, away from manufacturing towards the provision of services, the development of intellectual property and of the development of technology generally.

In common with the general trend, much of Jersey’s continued success can be attributed to innovations in –

  1. legal structures, services and rulings;
  2. financial products;
  3. electronic commerce systems;
  4. horticulture and agriculture.

The States of Jersey has made significant commitment towards industry bodies generally in relation to the finance, tourism and agricultural industries however the efforts appear to be concentrated on marketing the Island’s product offerings rather than developing new products and services.

A foundation for science, technology and industry in Jersey

A foundation for science, technology and industry could be effective in encouraging professionals at all levels of Jersey’s industries to participate in developing new products and services jointly or otherwise assist in the establishment of compound products and services derived from bit slice product and service providers. It would also assist in increased entrepreneurial activity, representing a hub for businesses seeking particular services or products, and those providing particular services or products.

The States of Jersey commits significant resources to, inter alia, the development of arts, sports, education generally and to marketing the Island’s products yet it does little, if anything, to support and nurture the sciences and academic developments that represent the bedrock of future revenue generation.

Opportunities

Retail services – A significant proportion of the Island’s unskilled labour service the Islands retail and electronic commerce based retail industries. It is crucial for Jersey’s economy that Islander’s shop locally and that, where possible, the Island continues to supply goods outside the Island to maintain valuable transport and communications channels.

There is scope for creating tools and services that aggregate available products from Jersey for the purpose of both inward and outward online marketing and to enable retailers to gain market intelligence. Searches for particular products using popular search engines often return references to comparison sites rather than providers directly: for example, Kelkoo, NexTag, Froogle and eBay. A product-oriented store front for Jersey could help to promote the Island’s electronic commerce industries as a whole and potentially facilitate wide access to a platform for selling goods online for local retailers and individuals without the resources to establish outlets themselves.

eBay, for example, is widely used by people wishing to commence trading from home and by businesses that do not have the technical and financial resources to establish and market an electronic commerce website. eBay is also a recognized source of sales even for those businesses that have established electronic commerce websites.

Professional services – We can differentiate between professional service providers that provide knowledge and expertise relating to particular localities, and those that provide knowledge and expertise in a particular technical domain. For example, an architect or a lawyer may provide specific knowledge and expertise relevant to the local planning or legal regime whereas an asset manager will provide knowledge and expertise relating to investments generally available to a client wherever they are based.

Professional service industries that are not founded on local knowledge are highly mobile leading to competition between jurisdictions for both labour resources and a favourable tax environment. Such mobility is readily supported by computing models based on remote access to computing facilities: for example, remote desktop and Citrix XenApp / MetaFrame.

The future of professional services for both operational and business continuity purposes may be increasingly based around contract workers who are provided with remote access to virtualized data centres and voice over IP telephony, rather than retained employees using internal computer systems suggesting that jurisdictions may need to consider establishing mechanisms for organising and promoting classes of cloud knowledge workers, rather than promoting industries generally.

Legal services – There may be scope for the development of an electronic court system to facilitate dealing with claims arising from common, low value contracts or for interpreting template-based contracts. For example, many electronic services use relatively standard terms and conditions but enforcement in the electronic environment is difficult and expensive. An electronic court of first instance may be beneficial in encouraging both local and foreign businesses to apply a Jersey-based legal system for dispute resolution.

Decisions within such an electronic court of first instance could be made by legal cloud knowledge workers.

How far should the States of Jersey go in facilitating electronic commerce?

The States of Jersey is continually investing in the Island’s physical infrastructure to support economic activity while exercising restraint participating in direct economic activity: it commits substantial amounts of money in the road system, in the town, in the court system and in education to foster an environment in which business can flourish.

As jurisdictions tend towards convergence in the fields of law, tax and labour relations and as businesses tend towards jurisdictional mobility the key differentiator between jurisdictions will become the cost, quality and availability of labour, and quality of life.

In the course of time, it may become necessary for the States of Jersey to go further in facilitating economic activity on the part of its citizens rather than businesses and to provide facilities and infrastructure, and appropriate marketing to expose its labour market to market opportunities avoiding reliance upon mobile businesses.

Here follows the text of a speech I put together in late 2001 for a conference of sorts organised by the Jersey Computer Association ("JCA"). Founded in or about 1985 and largely defunct now, the JCA was at the forefront of early adoption of computing technologies in Jersey and was particularly well known for its annual Christmas computer shows. Changes in the industry, commodotisation of computing generally, the growth of the Internet since 1994 and competitive issues resulted in the JCA becoming less prominent as an organisation with the result that few industry representatives were prepared to serve on the committee.

The conference was organised to try to help re-establish the JCA as an industry representative body, much as Digital Jersey is proposed to now, with a view to leading the development of both an information society and technology as a "fourth" pillar of Jersey's industry thereto support by the three industries of agriculture, tourism and financial services. Despite certain references to the formerly applicable VAT rules relating to low value consignment relief ("LVCR") and aspects of the Island's system of taxation, the issues raised are as applicable today as they were in 2001.


UK online, the UK government’s e-strategy portal states

“it is a nation-wide partnership that brings together Government, Industry, The Voluntary Sector, Trades Unions and Consumer Groups to make the UK one of the World’s leading knowledge economies.

We share the overall objective of making the UK the best place in the world for doing business online.”

Guernsey’s e-business portal says

“In entering the e-business arena, Guernsey declared its intention to compete on a global scale. The prizes are great and the competition fierce, demanding a clear understanding of what we must achieve and how we intend to get there.”

From the Jersey Information Society Commission

“The Growth of eBusiness is viewed by the States of Jersey as essential for the future of Jersey.”

Throughout the world, countries have announced new initiatives that make eBusiness, Information Societies and Knowledge Economies an integral part of their strategy for the future and each promises to be “the best place in the world for doing business online”.

For all the jargon and rhetoric, relatively little is understood about precisely what effect the Internet and Information and Communication Technologies ("ICT") are having on society. Most statements I have ever seen about eBusiness, Information Societies and Knowledge Economies are relative – they refer to what other people are doing and say, in effect, we must catch up. They use impressive terms like “infosphere”, talk of revolutions, and warn of arriving too late.

However, I would like try to give you a clearer picture of what I think is happening here, in Jersey, as a result of ICT and eBusiness.

ICT is to service what machinery is to product:

  1. It enables routine business processes and mechanical decisions to be automated.
  2. It enables companies to relocate business functions that do not require the knowledge, skills and expense of Jersey-based staff to other off-Island business centres.
  3. It is commoditizing service.
  4. It is polarising the market for services to create two distinct service propositions: inexpensive, mass-delivered services and expensive, knowledge or skill-based personal services.
  5. It allows service-based companies to become more fluid.
  6. It allows companies to place less emphasis on geographical location and more emphasis on the location, mobility, knowledge and attitudes of its staff.

ICT is already having a profound effect on the Island and the structure of companies based here.

ICT is an integral part of Jersey’s economy. Its importance should not be understated.

ICT and eBusiness in particular creates opportunities for every local business. Development of eBusiness capability as part on an ongoing business strategy enables all local businesses to expand organically into markets such as the UK and Europe without the level of investment and additional layers of management expertise required for physical expansion into these markets.

Jersey’s zero-rate VAT policy and its ability to export certain goods to the UK free of VAT has enabled a number of local companies to have seen significant growth purely through their eCommerce operations.

In service industries that are readily automated, there is huge potential to provide services to consumers free of value added taxes.

And in industries that handle information, particularly personal information, there are significant opportunities to trade on Jersey’s existing reputation for confidentiality and discretion.

However, eBusiness in Jersey faces numerous threats: both externally and from within.

Externally, Jersey is threatened by the OECD member states for trading on the basis of tax competition. It is vulnerable to changes in VAT and duty rules for imports into the UK and Europe as well as the introduction of so-called “digital taxes” for services provided electronically.

Jersey’s eBusiness information industries, not to mention its finance industry, are particularly at risk from concentrated attacks on their information systems.

Internally, Jersey’s eBusiness industry is threatened by the rapid introduction of change. For example, the introduction of a local form of VAT or other legislation could both complicate systems and processes and remove all the current advantages of operating from Jersey.

The combination of lower transport and staffing costs and, indeed the availability of staff enjoyed by UK based competitors may also mean that, despite an advantageous VAT policy and other fringe benefits, companies based in Jersey are at a significant disadvantage.

From all these points, I conclude that if we fail to provide the right business environment to support 21st century service businesses we are likely to see a gradual migration of these businesses to more competitive locations.

ICT knowledge and skills are a fundamental component of 21st century service businesses.

Jersey’s ability to deliver innovative IT solutions to business problems is key to maintaining its competitive edge in offshore financial services.

Jersey’s ability to deliver innovative IT solutions to business is key to developing a significant industry based around eCommerce, eBusiness and eServices.

Our strategy to date has focused on an advanced telecommunications infrastructure, an IT literate population comfortable with technology and a pledge to foster, sponsor and grow an intelligent industry based around information and knowledge.

In a global business that requires innovation, creativity and technical skill, Jersey is providing keyboard skills and computer driving licenses. Jersey is providing the foundation for a clerical industry not a progressive knowledge based industry.

It believes that, through questionable tax advantages and an advanced communications infrastructure; it can attract world-class eBusiness without the full range of skills to support such an industry. It believes it can trade on old values in a new global business that has new values.

By virtue of its size, Jersey is capable of integrating its industries and system of education with its strategic vision in ways that larger countries cannot. By virtue of its size, it is capable of creating just the right environment for 21st century businesses.

With its position in the finance industry, its geographical location and its sovereignty, Jersey is capable of developing a strong and vibrant industry based around ICT, eBusiness, eCommerce and eServices.

However, by lacking a suitably open and progressive framework within which to develop the environment required for our businesses, Jersey runs the risk of discouraging inward investment in the very industries it seeks to encourage.